Q2 2023 Xos Inc Earnings Call
[music].
Greetings and welcome to excess Inc's second quarter 2023 earnings call. At this time, all participants lines are in a listen only mode.
For those of you participating in the conference call there will be an opportunity for your questions at the end of today's prepared remarks Lee.
Please note. This conference is being recorded at this time I would like to turn the conference over to General Counsel of Xo's Christian Romero. Thank you you may begin.
Thank you everyone for joining us today hosting the call with me today are Chief Executive Officer of Dakota, similar Chief operating Officer, Giordano, Sordoni and acting Chief Financial Officer Liana.
How does this call extra issued its second quarter 2023 earnings press release, which we will reference during this call. This can be found on the Investor Relations section of our website at investors got excess truck Dot com.
On this call management will be making forward looking statements based on current expectations and assumptions, which are subject to risks and uncertainties.
Differ materially from our forward looking statements if any of our key assumptions are incorrect because of factors discussed in today's earnings news release. During this conference call or in our latest reports and filings with the Securities and Exchange Commission.
These documents can be found on our website at investors got excess truck dot com, we do not undertake any duty to update any forward looking statements.
Today's presentation also includes references to non-GAAP financial measures and performance metrics.
Please refer to the information contained in the company's second quarter 2023 earnings press release for Definitional information and reconciliations of historical non-GAAP measures to the comparable GAAP financial measures.
You should be cautioned not to put undue reliance on forward looking statements.
With that I'll turn it over to you.
Thanks, Kristin and thank you everyone for joining us for our second quarter 2023 earnings call.
On today's call I will cover the quarterly business highlights provide an update on our vehicles and energy solutions deliveries and share the latest on the regulatory tailwind supporting the industry.
Then our CLO Giordano Sordoni will provide an update on our manufacturing efforts to wrap up our acting CFO Liana Pogo CN will share the company's second quarter financial performance.
I'll begin by discussing our deliveries and the growing demand we are seeing for our vehicles. During the second quarter. We delivered a total of 38 units modestly higher than the first quarter.
Deliveries in the quarter were negatively impacted by customer charging infrastructure delays that pushed some planned second quarter deliveries into the second half of this year and into 'twenty 'twenty four.
In light of our deliveries in the first half of the year, we have elected to revise our full year 2023 guidance to 250 to 350 units delivered and associated revenue and non-GAAP operating loss expectations, which liana will cover later.
The updated ranges reflect both slower than anticipated deliveries and higher than expected asps.
Driven largely by customer uptake of the long range 200 mile step van variant.
Our success in generating follow on orders from large national accounts gives us confidence in achieving these targets.
Seeing the benefits of our sales approach focused on long term customer relationships with orders like the 30 units for unit first that we announced last week as part of a 200 unit memorandum of understanding we signed in 2021.
We also expect to deliver between 120, and 150 vehicles to repeat customer Loomis and the second half of this year.
Additionally, we are seeing more customers, bringing charging infrastructure online.
Spurred on by the inflation reduction Act and advanced clean fleets rules. Many of our customers began investing in charging infrastructure at the beginning of 2023 and we expect these charges to come online over the next 12 months.
Turning back to the second quarter, we successfully produced and shipped our first gross margin positive units.
These units are the first 2023 step vans shipped to customers and we expect our financial performance to continue to improve as we scale production.
This is an exciting milestone for both Exxon and the industry as we were among the first Oems to demonstrate that commercial EV trucks can be produced profitably.
We do still have a number of previous generation trucks in inventory and on their way to customers that will have a negative impact on company gross margin performance through the rest of this year.
Even as we expect to deliver gross margin positive units throughout the second half of 2023.
Moving now to excess energy solutions and charging infrastructure.
As a company we underestimated the challenges for the EV truck industry and installing new charging infrastructure. However, the outlook is improving for last mile fleets. We serve both in growing demand for our suite of comprehensive charging services and in growing infrastructure investments by customers at the time.
Vehicle purchase.
Without charging infrastructure will remain a constraint on EV truck adoption, we anticipate improvement through 2024 will be motivated by incentive capture and emissions mandate compliance. In addition to our permanent charging infrastructure projects. We are also seeing growing interest in the second generation.
Excess hub.
As you May recall, the hub is capable of charging five vehicles at the same time from a single power connection, enabling fleet operators to transition to evs before installing permanent infrastructure.
These capabilities are bringing a diverse set of customers to the table from fleet operators to utilities and construction companies looking for off grid power solutions.
Shifting to the regulatory environment recent changes are driving demand for access to vehicles in California, the advanced clean fleets or ACF rule requires the medium duty fleets, including step vans to transition to zero emission vehicles.
By 2025 large fleet operators in California will be required to have 10% of their fleet Bureau emissions vehicles.
This means that thousands of step vans over the next two years will be required in order to comply in California alone.
Outside of California, 14, other states have signed a pledge for 30% zero emissions fleets by 2030.
The ACF rule is administered by the California Air Resources Board or Carb, which has a history of setting aggressive targets and strictly enforcing them.
California fleets experienced a similar event in 2008 with the passage of Carbs, California statewide truck and bus rule at the time the rule required all new trucks to comply with lower particulate emission standards and eventually required the phase out or retrofit of older engines.
While most fleets anticipated this landmark legislation to be challenged or delayed the implementation proceeded as planned with the final phase out of older diesel engine having occurred in 2022.
We expect carb to enforce the ACF pool with the same rigor, including fines for noncompliance.
Our conversations with customers reflect the seriousness of the new zero emission mandates. We have received orders and are delivering vehicles that will bring a number of California fleets into compliance.
The step van fleets are not yet on track to comply the limiting factor is typically charging infrastructure, which is why excess energy solutions remains such a focus for us.
On the incentive front, we're seeing a strong uptake of the $40000 I or a tax credit and additional incentives available in 11 states covering 42% of the U S population.
In some cases.
Stackable federal and state incentives bring the cost of an extra step and meaningfully below the purchase price of the diesel alternative providing a total cost of ownership advantage on day one.
I would like to stress, however, that we do not need to and are not relying on these incentives to support customer purchasing decisions are vehicles already offer a compelling tcl advantage on an unsubsidized basis.
Finally, before I wrap up I would like to discuss our focus on cost efficiency.
During the quarter, we set aggressive operational expenditure reduction targets and have made meaningful changes in order to achieve them.
First we reduced our spend on a range of overhead costs, including subscription software insurance and professional services.
Second we made the difficult decision to reduce our head count during the quarter, we remain committed to building a sustainable business with the appropriately sized workforce. This is never an easy decision to make and I would like to thank every excess employee for their support in achieving our mission.
Finally, heading into the third quarter, we prepared to bring our manufacturing in house, which Joe will cover. Shortly we are confident that these actions have placed excess on the right path to profitability without sacrificing our growth targets with that I would now like to turn the call over to our CLO.
Oh, Sordoni, who will share an operational update Jill.
Thanks Dakota as Chuck mentioned, we made the decision to in source or contract manufacturing activities within the excess organization.
This decision was made after the team identified opportunities to see significantly.
Significantly lower our cost improve quality control and simplify inventory management relative to the contract manufacturing agreement.
As such at the beginning of the third quarter 33 employees from our former contract manufacturer formerly joined access.
All excess vehicles continue to be manufactured on the same Tennessee facility using the same processes and by the same team.
As many of you know ex citizens operational focus remains on delivering gross margin positive units and Thats Dakota briefly mentioned earlier, we're happy to announce that we successfully produced and shipped our first gross margin positive units.
The team has taken meaningful steps in order to achieve this school chief among them. The release of the 2023 step in both 102 hundred miles areas, the new vehicle, which began shipping to customers in the quarter is yielding a cogs savings of over $15000 per vehicle compared to the prior model.
Significant portion of those savings come from design improvement that simplified the assembly process and save time on the production line.
We expect to continue rolling out cost savings updates over the next year as further improvements are made when we worked through the existing component inventories at the same time, we're building a higher performance and higher quality product for our customers on the quality front. Our team is wrapping up a block of test track time, accumulating a 300000 mile real World life.
Ben validate durability.
On the production line, we have made improvements to the vehicle design and assembly process that resulted in a quieter driving experience for the driver.
These continuous improvements provide a competitive advantage for excess and stepped down fleets, where drivers are regularly subject to high noise levels.
Elsewhere in the factory implemented a new incoming part inspection process ensure we accept quality parts from our supply base and avoid future inventory write downs.
In summary, we remain well positioned to scale, our business expand margins and look towards generating positive cash flow.
I'll now turn the call over to our acting CFO Jan <unk>, who will cover our financial results for the quarter.
Thank you and good afternoon, everyone.
The second quarter, our revenue was $4 8 million compared to $4 7 million in the first quarter of 'twenty 'twenty J R.
Our cost of goods sold during the quarter increased to $8 5 million compared to $5 6 million from the first quarter of 'twenty Clancy.
That's margin during the quarter was a loss of 3.7 million compared to a loss of four 9 million in the first quarter.
This was driven by a lower average selling price did you channel next additional reserves recorded during the second quarter and a physical inventory and other adjustments.
Turning to expenses, our second quarter operating expenses decreased to $16 8 million from $19 2 million in the first quarter of 2020 three.
And it was largely driven by lower general and administrative expenses of $9 8 million during the quarter compared to $11.6 million in the first quarter up 2023.
non-GAAP operating loss for the second quarter was $17 million.
Yeah.
As mentioned earlier in the call you made additional cost cutting changes during the second quarter, including bringing our manufacturing in house, but do you think subscription software span and then a reduction of pet.
The outcome of these changes is a more streamlined organization, but excess resources focused on our top priorities are delivering more units expanding margin and preserving a healthy liquidity profile.
We closed the quarter with cash cash equivalents and investments of 41.1.
In addition to the cash used in operating activities, we used $7 8 million during the second quarter in financing activities, primarily related to payments on our convertible debentures with Yorkville and other short term insurance financing.
Yeah.
Operating cash flow less capex or free cash flow of negative $15 8 million for the quarter was in line with negative <unk> six.
6 million last quarter.
We believe that as we go out and they're very volume build of working capital and put glass was positive gross margin will have options to raise additional capital and well continue to long haul.
That does sound liquidity.
Looking forward, we're revising our full year 2023 guidance to 250 350 units delivered.
Revenue to be in the range of 36.3 is 54 7 million.
And non-GAAP operating loss of between $55 million to $61 million.
The change in our outlook reflects lower deliveries in the first half of the year and a more conservative forecast based on our current backlog orders for the second half of the year as our customers continue to work through infrastructure permitting emulate.
Our revised revenue range is supported by stronger than initially anticipated E. S. T and we expect our non-GAAP operating loss came true compared to our original expectation.
Selecting the cost efficiency progress we have achieved over the year.
I'll now turn the call back over to the call.
Yeah.
Thanks, Liana, we are encouraged by our position at the forefront of the industry with established customer relationships, a second generation vehicle and production and gross margin positive units in customer fleets.
The challenges remain we are focused on maximizing our advantage over our competition most of whom remain in the development phase of a first generation product.
Incomplete trucks, the maturity of our vehicle technology is reflected in renewed interest in excess powertrains for use in specialty and off highway vehicles that we hope to share more on soon.
As we look towards the second half of this year, our internal strength and direct benefits from EV mandates and incentives have ex us on track for long term success.
We look forward to sharing that success with you in the coming quarters and remain committed to cost efficiency and maximize access his ability to deliver value to both our customers.
And shareholders with that let's open up the line for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone, if you're using a speaker phone. Please pick up your handset before pressing the keys. If at any time. Your question has been addressed and you would like to withdraw. Your question. Please press Star then two at this time we.
We will pause momentarily to assemble our roster.
Yeah.
The first question comes from Donovan Schafer with Northland Capital. Please go ahead.
Hi, guys. Thanks for taking my questions I wanted to start with just the guidance. So you know.
You guys did lowered its debt.
But it's still it is still quite high given the relatively low levels of deliveries in the first half of the year. So I'm. Just wondering if you can give us a sense of what kind of visibility you have there.
You know how what's the confidence level is what gives you that confidence I believe Dakota you can confirm this.
I heard it correctly you said there were 120 to I don't know if it was 150 or something Loomis vehicles that you are sort of committed to delivering in the second half of the year, maybe that's a big part of that.
And the Universe 30, you know thoughts in there just in general kind of what the things get included there that gives you that confidence.
Yeah, absolutely happy to provide more context on it and get to connect so for our revised guidance. We really wanted to make sure that we had 100% confidence in achieving the bottom end of that range. So.
So just as you noted we have several deliveries that are going to be made loomis and the range of 120 to 150 vehicles for the second half of the year. Many of those vehicles are actually already in production and are going to be shipping very soon from our facility, we've actually shipped some of them already.
And then we have several national accounts.
Like universe, and others that are also going to be shipping in the very near future.
From the facility that we are basically finalizing pre delivery inspections on and expect to go to customers, including folks like Canada post. So really we do have a strong conviction about being able to achieve those numbers. The other really important dynamic here is that a large national fleets many of them have been planning.
For infrastructure for some time now.
While infrastructure continues to be a hurdle in the quarters that we've seen.
Many of these customers have been installing infrastructure proactively that we know as these trucks come off the line, they're going to have a home and we can get them into service as quickly as possible.
Okay. That's helpful and you actually kind of preempted my follow up question. There I was going to ask you know what it what is it with given the infrastructure challenges what is it that enables to company like this.
To commit to so many vehicles so.
Yes.
What I was asking instead then.
Is just if there are updates for what you're seeing and hearing kind of more directly on the EV infrastructure.
You know a challenge is it is it primarily <unk> or their equipment shortages I've heard I think like switch gear and.
You know like disconnect cabinets that are often required on these sites with the higher voltages.
The kind of supply chain, there and that's what fleets of the larger fleets have been able to get out ahead of that are anticipated at or even have better relationships with vendors to get their hands on product.
Is it more just utilities kind of being a stick in the mud combination of all of it to just any elimination on kind of trends or developments, there and maybe what.
The kind of more granular on why it's a fleets the big national operators can get around it.
Yeah. It's a it's an important question when we look at the process of deploying charging infrastructure.
We start really as soon as we have the purchase order from the customer and in many cases, we're actually having conversations now with customers that are recurring customers of ours to pre plan more chargers than truck orders that were receiving from them just.
Just because they know the timeline for getting infrastructure deployed it can be a lot longer than actually building a vehicle.
The two longest tent poles in the process of deploying infrastructure or the approval and getting permits for a specific site and getting additional power from the utility if there's not currently enough power on site.
And what we do whenever we start with excess energy solutions and deploying charging infrastructure for customers. We actually do site assessments of several of their fleet locations and that will consist of us going out to the utilities inspecting the sites seeing what existing power exists on site and then actually preparing a plan that's.
Going to enable them to maximize their deployments of vehicles and concentrated depots.
And also maximize incentives and minimize the amount of time to deploy vehicles in those areas.
Several customers Loomis being obviously, a big one of those were actually supporting with that infrastructure process and.
We've gone through a couple of iterations of finding the perfect sites that can be deployed as quickly as possible.
And we worked through that with several other customers in the cases, where we can't get around that.
We have been deploying hubs to some of those customers.
The excess hub that we've talked about in previous quarters and also in this quarter is now going out to customers and what we're doing is we're able to install that hub within about a week on site and at least to get up to five Chargers.
To support the vehicles that are already there.
While that permitting is being permitted while that infrastructure is being permitted approved or the utilities, bringing additional power or it's being constructed that hub can provide a small stop gap for where smaller depots or depots, where you have the power to be able to utilize multiple hubs.
That's really a useful tool.
As we start rolling more vehicles out to customers in these concentrated locations.
Thank you that's helpful and if I can squeeze just one more kind of detailed question in hunting and on the guidance do you have a sense for kind of how much is it or if it would be weighted more towards the third quarter or the fourth quarter kind of between the two with push outs from.
Our second quarter to third quarter, and you could look at that and think Oh, well, maybe that means the third quarter, that's going to be the big one, but yeah you got it.
You know ramping growing quickly and everything.
And so he is going to be the favorite fourth quarter.
And if theres risks of further push out so maybe it's too early to say, but what should we sort of be thinking.
Littlest guided for the second half of the year it'll be more heavy in the third quarter are heavier in the fourth quarter.
Yes, I think it and looking at both of these quarters going to be a significant uptick from the previous two quarters.
For both of them are while.
While there is still some seasonality because of the peak shipping season in October November and December in Q4, we expect deliveries to carryover into Q4 and to potentially be a little bit higher than Q3.
That being said, we're taking every possible opportunity to accelerate deliveries.
Before the busy season, and so there's a chance that Q3 could come in a little bit higher if we're able to pull in some of those delivery dates or charging infrastructure commissioning.
Okay. Yeah, that's actually helpful. Because then it just sort of like.
It's a positive thing if you can get it all into the hands of run ahead of time fantastic.
But yeah.
But there's not like kind of.
Downside to if it plays out the other way Okay. That's that's helpful and that makes sense I know, it's holidays that makes it hard for the.
The shippers just they're so busy to take receipt of the equipment in the fourth quarter. So alright. Thank you guys. Congrats on the Loomis you know the the luminous commitments, that's fantastic and I'll take the rest of my questions offline.
Yeah. Thanks, Tom.
The next question comes from Mike <unk> with D. A Davidson. Please go ahead.
Hi, good afternoon, and thanks for taking my questions.
Maybe wanted to touch first on some of the comments you made Dakota on the ACF rules.
We're four and a half months away from just you know becoming something that people are starting to.
The husky will follow.
I guess I'm curious.
Yeah.
Yeah.
I'm not sensing any sort of urgency out there amongst we've just actually trying to meet these rules.
Can you give us a sense as to how have your customer conversations in actual orders and your backlog increased over the last month or two it just seems like.
We're not seeing a lot of backlog change, even though as well.
Start wondering you're only a few months.
Yeah, absolutely happy to provide more more context, Mike and thank you for the question, we haven't seen an uptick and just to clarify the phasing milestone for the ACF rule is actually at the end of 2024.
The requirement date will be January one 2025.
But for large fleets that still means they need to start planning now at least one purchasing cycle in advance of the phase in date to ensure that theyre going to be compliant.
We have started to see an uptake, particularly for those fleets that are going to be subject to the regulations.
There's some recurring purchases as well as some new customer purchases that we've seen lately that have been driving additional demand for the vehicles.
It's to be the department of when those vehicles will actually get delivered if theyre going to be a part of the end of Q4, if there would be a part of our deliveries early next year.
But we are seeing an uptick in order demand.
And just a little bit about the penalties if someone doesn't meet the rules I mean, if someone has ordered a charging station in the P. J D is just so backed up they can install it I don't have a transformer nearby.
It's not the fleets fault, so I guess the other exemptions for those that just don't get people Patricia.
Where things are out of control.
We haven't seen any guidance on that from carb and from the regulatory agencies, but.
You know, we we were remaining on top of it and trying to monitor the situation to make sure we can best inform our customers.
If nothing does change we have solutions like the hub that obviously can be a good stop gap in the short term at least until customers are able to get you know the approval from utilities and the permanent infrastructure completely commissioned.
Okay.
And you had mentioned there's potential for 1000 units of volume here.
And I'm trying to figure out if there's any other company out of the next dose on the step van fulfilled out of volume I mentioned, it last quarter, but now.
We had a major supplier of batteries procurer.
This week.
The only other player I think to think of instead of bands uses pro terrorism battery supplier today. Another step down that's about to be launched also has to a terrorist specced into their battery.
I mean, not that they're going away anytime soon but if any other companies are having challenges with getting step vans out the door.
What's your ability to.
Step in and meet whatever demand they've got out of your factory.
Yeah, that's a really really important context, then you're right that several of the or the only other real competitor building step van chassis and electrified step van chassis.
Was utilizing our per terabyte or a system.
That will definitely impact their ability to continue to deliver products.
We can obviously ramp production pretty flexibly to.
To support incremental growth in demand and the biggest thing we wanted to ensure for customers for their own success as they deploy these vehicles that they've got that charging infrastructure ready to roll and ready to go.
While we don't like to see you know any failures within this industry.
The fact that we're going to be one of the few vendors that are going to be able to provide solutions for step van fleets, obviously bodes well for us as the demand and regulations continue to advance the need for our vehicles.
It also is a potential expansion for us as we think about our powertrain business powered by X OS we've.
We've been continuing to grow that business and actually are selling into some on highway specialty vehicle applications now as well.
That could supplement and continue to build out our growth in the powered by access business too.
Okay, maybe 111 last one for me.
Can you maybe put some brackets around what do you what do you think your cash burn is going to be over the next 12 months just trying to get a sense, obviously for when and if you may have to ask any additional capital or whether you're okay for the for the foreseeable future.
Yeah.
Thank you for the question happy to provide additional context that I previously mentioned in our prepared remarks, we do have sufficient capital.
To go into 2024, and we also have made various cost reductions that we continue to evaluate and are also pursuing additional funding opportunities that in the quarters to come.
Alright fair enough I'll leave it there thank you.
Our next question comes from Jerry Revich with Goldman Sachs. Please go ahead.
Good afternoon, and good evening everyone.
At Dakota.
Of your.
Cost of goods sold so that was up sequentially more than unit shipments. So I'm wondering can you just talk about what proportion of that.
Is is overhead and any moving pieces.
From here because it looks like the Cogs per unit.
<unk> was up sequentially.
Happy to provide additional context on that so demand. The primary drivers of why cost of goods sold was up sequentially. This quarter was just overall lower average selling price as well as additional with inventory write downs and we reserve that we took this quarter.
That was more as a part of standard course of business that is specific to this quarter.
Okay.
Thank you for the context, how much was the write down.
The rate was for the quarter was approximately.
$1 1 million.
Okay. Okay. Thank you and then in terms of the.
Transition to new truck production in the back half of the year out of the guidance for back half deliveries. What proportion are are going to be the new truck, where you expect positive gross profit contribution versus.
The previously price.
First generation correct.
Yeah, we don't have a specific split between older inventory in the newer inventory.
But the majority of vehicles will be the newer inventory that is positive gross margin and the other thing that we noted which is really important as we look at the back half of the year and as part of the revised guidance, because we're delivering a significantly larger proportion of our long range vehicles, including a long range strip chassis for <unk>.
Specialty vocational applications as well as long range step vans.
And those actually are higher a S. P vehicles because of the larger battery size.
Or double the battery, that's onboard 100 mile range vehicle.
So it drives higher Asps and it helps also lower our inventory levels for for the tail end of the year. Those platforms are also higher gross margins.
Than our typical 100 mile range vehicles.
Okay.
And I'm wondering if you folks who might just expanding on your prepared remarks comments.
Transitioning production in.
In house.
Exactly.
The time line looks like and what are the steps are in in.
In that process in just a few more words on what's driving.
The change in the profile.
Hey, Jerry this is G O.
The question the transition has been completed as of the end of Q2 start of Q3 and so that's just taking the employees that were previously on our contract manufacturers payroll over to excess payroll.
Assuming that responsibility.
Okay.
Okay can you just say more about the rationale.
Just expand on what's driving the change please.
Yeah, So we've been working with them.
Four.
A few years now and I think we've just got to a place where the excess team was.
Deeply involved in the factory and the operational already we had our own quality folks on site or on manufacturing engineering folks on site.
It just made sense to.
Streamline and simplify by bringing those folks onto the excess team rather than having that sort of arm's length contract manufacturing relationship in place.
And it's made things run.
Bit more smoothly and it's also an opportunity to reduce costs as well.
And the maintenance of cost reduction that youre anticipating <unk> versus Q2 as a result.
From a manufacturing standpoint, our manufacturing costs will see savings of fees that are around 5% to 10%.
But there's probably additional operational savings that come from improved communications.
<unk> improved our timeline to get vehicles assembled and delivered.
Okay. Appreciate it thanks.
Thanks Jerry.
Our next question comes from Sharif L shall behave with Bank of America. Please go ahead.
Hi, good afternoon.
So just staying with the change in bringing production in house have you begun to produce packs internally or are all of the pack on the new vehicles still coming from C. A T L a supplier.
We are producing both packs so we're producing the excess tax for vehicles as well as utilizing <unk> from Scottsdale.
Understood and are you able to get a sense of are these see ATL packs covering the majority of the new product platform versus the legacy if you can give a breakout there.
Yeah, we don't have existing breakdowns of how many are utilizing for our pacs or how many utilizing E. L. F P packs.
But we're continuing to utilize both of the systems and we're seeing strong performance across different applications and use cases.
Are more suitable to the different chemistries NMC LLC.
Understood and just with vehicles that had been produced but not delivered or are you able to give us a sense of the scale of how much you've produced year to date.
We don't actually guide to that but we have been moving through inventory and continuing to.
Move into our 2022, 23 step and model, which is going to be the positive gross margin model that'll be the majority of shipments for the second half of the year.
Thank you.
Thanks, Gary.
The next question comes from Mike Szeliski with D. A Davidson. Please go ahead.
Yes, hi, Thanks for taking my follow ups here, just got too one and the transition to in house manufacturing confirm Theres no additional capex or other costs that have to take place. It's just.
It's just where they get their paycheck is that basically the idea.
There was an incremental capex investment that was made in Q1 and Q2.
Very nominal amount, we bought some fixtures and equipment associated with the facility.
I believe it was less than $1 million in incremental capex.
Okay got it.
Just wanted to ask the folks who have actually received the 2023 truck model.
Have you gotten any feedback as to how they're performing compared to the previous year's model as far as range of liability.
Et cetera.
You can give us on how different the product is in the field would be appreciated.
Yeah, there's there's been several improvements Mike first of wishes. One you mentioned, which is the range increase so we have an incremental 20 kilowatt hours on board of energy storage as well as a different software package in different sub ranging the battery system, which means a longer range vehicles.
And that really is important for the extreme climates.
Parcel delivery, where they typically is still due under 100 miles a day.
We are seeing you know in some of the extreme range climates are extreme climate areas, where we have vehicles deployed like in Canada.
Northern climates, they are utilizing their heater systems really for the full length of their routes during the day and so that has a incremental weight on the battery, but we're still able to achieve that 100 mile range.
With this new pack system. The other improvements are really centered around a lot of the driver comfort.
And driver drive the ability of the vehicle.
So our new cooling system on the vehicle is a much more robust HVAC system, which is already being noticed by the drivers. We also have our new cluster in new software package on this vehicle, which is being appreciated by the drivers.
And with the capability to do over the air updates on this platform and flash New software releases, we anticipate continuing to improve the software and efficiency of the vehicle as well as releasing several incremental hardware improvements to this vehicle over time that the customers will get the benefit of an ultimately will accrue to the drivers in blue.
Operators in form of reduced T C L.
Now I would just add to that and double click on with Dakota sat as far as over the air updates. This is a huge deal to our customers having the ability to not only monitor their fleet remotely, but also push software updates when needed.
This is a really unique capability in the commercial vehicle space I think we might be one of the only if not the only commercial truck provider provider that is offering over the air update capability in our vehicles.
I'll also mention that.
In addition to customer feedback and customers being excited about the new platform.
These vehicles also went through a very intense a battery of tests and.
And thermal chambers as well as durability.
Completed thousands of miles of real World World durability testing anecdotal, but the folks at the durability track technicians and drivers.
Who tests commercial vehicles all day long mentioned that this is the highest quality E V. They've seen that's come through their facility.
In terms of the build quality and the performance on on the durability of course.
Great setting so interesting I'll pass it along thank you.
This concludes our question and answer session I would like to turn the conference over to Dakota, similar for any closing remarks.
Thank you operator, and thank you everybody for joining US today. We appreciate all of these insightful questions and inputs and as we continue to deliver vehicles through the second half of the year, we want to reiterate the three core tenants that we've been focused on over the last year, which is growing the demand and the deliveries of our products we expect.
You see that in the third and fourth quarter, improving gross margins, which we also expect to see as we launched the new platform of our 2023 step van and strip chassis into customer hands and.
And maintaining healthy access to capital to ensure we are strongly positioned to fund and scale of the business, which we see into 2024 and continue to work with the capital markets to find other sources of capital to help grow the opportunities that we have within access.
Thank you everybody for your questions and your time today looking forward to catching up with you on our next earnings call.
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